torrent capital ltd. (formerly metallum resources inc.) … · (233,477) (326,266) adjustments for:...

TORRENT CAPITAL LTD. (formerly Metallum Resources Inc.)

FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2017 AND 2016

(expressed in Canadian dollars)

Management’s Responsibility for Financial Reporting

The accompanying financial statements of Torrent Capital Ltd. (formerly Metallum Resources Inc.) (the "Company") are the responsibility of the management and Board of Directors of the Company.

The financial statements have been prepared by management, on behalf of the Board of Directors, in accordance with the accounting policies disclosed in the notes to the financial statements. Where necessary, management has made informed judgments and estimates in accounting for transactions which were not complete at the statement of financial position date. In the opinion of management, the financial statements have been prepared within acceptable limits of materiality and are in accordance with International Financial Reporting Standards ("IFRS").

Management has established processes which are in place to provide them sufficient knowledge to support management representations that they have exercised reasonable diligence that (i) the financial statements do not contain any untrue statement of material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it is made, as of the date of and for the periods presented by the financial statements and (ii) the financial statements fairly present in all material respects the financial condition, financial performance and cash flows of the Company, as of the date of and for the periods presented by the financial statements.

The Board of Directors is responsible for reviewing and approving the financial statements together with other financial information of the Company and for ensuring that management fulfills its financial reporting responsibilities. An Audit Committee assists the Board of Directors in fulfilling this responsibility. The Audit Committee meets with management to review the financial reporting process and the financial statements together with other financial information of the Company. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the financial statements together with other financial information of the Company for issuance to the shareholders.

Management recognizes its responsibility for conducting the Company’s affairs in compliance with established financial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.

Halifax, Canada

(signed) “Wade Dawe” (signed) “Robert Randall”

President and Chief Executive Officer Chief Financial Officer

Halifax, Nova Scotia Halifax, Nova Scotia

Independent Auditors’ Report

To the Shareholders of Torrent Capital Ltd.:

We have audited the accompanying financial statements of Torrent Capital Ltd., which comprise the statements of

financial position as at December 31, 2017 and 2016, and the statements of income (loss) and comprehensive

income (loss), changes in shareholders’ equity, and cash flows for the years then ended, and a summary of

significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance

with International Financial Reporting Standards and for such internal control as management determines is

necessary to enable the preparation of financial statements that are free from material misstatement, whether due

to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our

audits in accordance with Canadian generally accepted auditing standards. Those standards require that we

comply with ethical requirements and plan and perform the audits to obtain reasonable assurance about whether

the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial

statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of

material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments,

the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial

statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the

appropriateness of accounting policies used and the reasonableness of accounting estimates made by

management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit

opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of Torrent

Capital Ltd. as at December 31, 2017 and 2016, and its financial performance and its cash flows for the years then

ended in accordance with International Financial Reporting Standards.

Chartered Professional Accountants

Licensed Public Accountants

Mississauga, Ontario

April 26, 2018

The accompanying notes are an integral part of these financial statements.

- 3 -

Torrent Capital Ltd. Statements of Financial Position

As at December 31, 2017 and 2016

(Expressed in Canadian dollars unless otherwise indicated)

2017 2016

$ $

ASSETS

Current assets

Cash and cash equivalents 772,290 6,353,915

Sundry receivables 4,744 30,874

Prepaid expenses 2,674 -

Investments in publicly-traded securities (note 5) 7,020,725 -

Loan receivable (note 6) - 292,312

7,800,433 6,677,101

LIABILITIES

Current liabilities

Accounts payable and accrued liabilities (note 10) 111,510 102,070

EQUITY

Share capital (note 8) 8,119,404 8,119,404

Contributed surplus (note 9) 2,423,021 2,303,912

Deficit (2,853,502) (3,848,285)

7,688,923 6,575,031

7,800,433 6,677,101

Nature of operations (note 1)

Approved on Behalf of the Board:

"Wade Dawe" "Jim Megann"

Director Director


- 4 -

Torrent Capital Ltd. Statements of Income (Loss) and Comprehensive Income (Loss)

For the years ended December 31, 2017 and 2016 (Expressed in Canadian dollars unless otherwise indicated)

2017 2016

$ $

REVENUE

Interest income (note 6) 17,543 83,919

Realized gain on investments 184,076 - Unrealized gain on investments (note 5) 1,639,681 -

1,841,300 83,919

EXPENSES

Consulting and wages (note 10) 232,788 68,190

Professional fees (note 10) 30,752 213,908

Directors fees (note 10) 63,205 53,500

Insurance 26,216 20,823

Stock exchange and maintenance fees 34,948 42,490

Office and administration 17,819 2,852

Travel 8,555 2,754

Rent (note 10) 12,420 6,712

Stock-based compensation 119,109 - Loss (gain) on foreign exchange 8,393 (1,044)

554,205 410,185

Operating income (loss) before the following 1,287,095 (326,266)

Write down of notes receivable (note 6) 292,312 - Gain on litigation settlement – net (note 7) - 320,000

INCOME (LOSS) BEFORE INCOME TAXES 994,783 (6,266)

Recovery of income taxes - -

NET INCOME (LOSS) AND COMPREHENSIVE

INCOME (LOSS)

994,783

(6,266)

Basic and diluted income (loss) per share 0.04 (0.00)

Weighted average number of shares outstanding 23,648,333 23,648,333


- 5 -

Torrent Capital Ltd. Statements of Changes in Shareholders’ Equity

For the years ended December 31, 2017 and 2016


Common Share

Shares Capital Reserves Deficit Total

# $ $ $ $

Balance, December 31, 2015 23,648,333 8,119,404 2,303,912 (3,842,019) 6,581,297

Net loss for the year - - - (6,266) (6,266)


Net income for the year

-

-

-

994,783

994,783

Stock-based compensation

-

-

119,109

-

119,109


On February 1, 2017, the Company completed a one-for-three share consolidation. All references to the number of common shares have

been adjusted retrospectively to reflect the Company’s one-for-three share consolidation for all periods disclosed in these financial

statements.


- 6 -

Torrent Capital Ltd. Statement of Cash Flows



2017

$

2016

$

CASH (USED IN) PROVIDED BY:

OPERATING ACTIVITIES

Net income (loss) for the year 994,783 (6,266)

Items not affecting cash:

Unrealized gain on investments (1,639,681) - Stock-based compensation 119,109 - Write-down of note receivable 292,312 - Write down of settlement proceeds receivable and

investments

-

757,305

Gain on litigation settlement - (1,077,305)

(233,477) (326,266)

Adjustments for:

Acquisition of publicly-traded securities (5,381,044) -

Accrued interest on loan receivable - (28,670)

Sundry receivables 26,130 (3,993)

Prepaid expenses (2,674) 11,185

Settlement proceeds received - 320,000

Income taxes recovered - 125,896

Accounts payable and accrued liabilities 9,440 (223,806)

(5,348,148) 200,612

CHANGE IN CASH AND CASH EQUIVALENTS (5,581,625) (125,654)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,353,915 6,479,569

CASH AND CASH EQUIVALENTS, END OF YEAR 772,290 6,353,915

SUPPLEMENTARY CASH FLOW INFORMATION:

Interest received 17,543 55,249

Torrent Capital Ltd. Notes to Financial Statements


(expressed in Canadian dollars unless otherwise noted)

-7-

1. NATURE OF OPERATIONS

Torrent Capital Ltd. (the "Company" or "Torrent") received final approval from the TSX Venture Exchange

(the “Exchange”) for its change of business from a Mining Issuer to an Investment Issuer on February 2,

2017. On a go forward basis, the Company will focus upon strategic investments in public and private

company securities. Trading in the Company’s shares resumed on February 6, 2017 under the symbol TORR.

The Company’s corporate office is located at Suite 2001 – 1969 Upper Water Street, Purdy’s Wharf II,

Halifax, Nova Scotia, Canada, B3J 3R7.

As at December 31, 2017, the Company had cash and cash equivalents of $772,290 (December 31, 2016 -

$6,353,915) and working capital of $7,688,923 (December 31, 2016 - $6,282,719). Management believes

that it has sufficient funds to pay its ongoing administrative expenses and its liabilities for the ensuing twelve

months as they normally fall due.

2. SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

These financial statements of the Company have been prepared in accordance with International Financial

Reporting Standards (“IFRS”) and their interpretations adopted by the International Accounting Standards

Board (“IASB”). These financial statements were authorized for issuance by the Board of Directors of the

Company on April 26, 2018.

Basis of Presentation

These financial statements have been prepared on a historical cost basis. In addition, these financial

statements have been prepared using the accrual basis of accounting except for cash flow information.

Financial Instruments

The Company’s financial instruments consist of the following:

Financial Assets: Classification:

Cash and cash equivalents Loans and receivables

Loan receivable Loans and receivables

Investments in publicly-traded securities Fair value through profit and loss

Financial Liabilities: Classification:

Accounts payable and accrued liabilities Other financial liabilities

Financial assets

Financial assets within the scope of IAS 39 – Financial Instruments: Recognition and Measurement (“IAS

39”) are classified as financial assets at FVTPL, loans and receivables, held-to-maturity investments,

available-for-sale financial assets or financial derivatives, as appropriate.

Fair value through profit or loss – Financial assets at fair value through profit or loss (“FVTPL”) are

measured at fair value with changes in fair value recognized in net profit or loss.

Loans and receivables – These assets are non-derivative financial assets with fixed or determinable payments

that are not quoted in an active market. They are carried at amortized cost less any provision for impairment.

Individually significant receivables are considered for impairment when they are past due or when other

objective evidence is received that a specific counterparty will default.




-8-

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial Instruments (continued)

Available-for-sale – Non-derivative financial assets not included in the above category are classified as

available-for-sale. They are carried at fair value with changes in fair value recognized in other

comprehensive income. Where a decline in the fair value of an available-for-sale financial asset constitutes

objective evidence of an impairment, the amount of the loss is removed from accumulated other

comprehensive income and recognized in net income.

Classification

The Company determines the classification of its financial assets at initial recognition. All financial assets are

recognized initially at fair value plus, in the case of investments not at FVTPL, directly attributable

transaction costs. The Company’s financial assets include cash and cash equivalents, loan receivable, and

investments in publicly traded securities.

Recognition and measurement Purchases and sales of investments are recognized on the transaction date. Investments are initially

recognized at fair value plus transaction costs.

Subsequent to initial recognition, all investments are measured at fair value. Gains and losses arising from

changes in the fair value of the investments are presented in the statements of income (loss) within net change

in unrealized gains or losses on investments in the period in which they arise.

Determination of fair values The determination of fair value requires judgment and is based on market information, where available and

appropriate. At the end of each financial reporting period, the Company’s management estimates the fair

value of investments based on the criteria below and reflects such valuations in the financial statements.

Publicly-traded investments (i.e., securities of issuers that are public companies):

a. Securities including shares, options and warrants which are traded in an active market, such as on a

recognized securities exchange and for which no sales restrictions apply, are presented at fair value

based on quoted trading prices at the end of the reporting period or the closing trade price on the last

day the security traded if there were no trades at the end of the reporting period.

b. For warrants and options which are not traded on a recognized securities exchange, no market value

is readily available. The warrants and options are valued at intrinsic value, which is equal to the

higher of the closing trading prices at the end of the reporting period of the underlying security less

the exercise price of the warrant or option and zero.

Private company investments:

a. For private company shares which are not traded on a recognized securities exchange, no market

value is readily available. The private company shares may be valued based on the pricing of a

recent significant financing.

Disposition of investments

Realized gains and losses on the disposal of investments and unrealized gains and losses on securities

classified as fair value through profit and loss are reflected in profit or loss on the trade date and are

calculated on an average cost basis.




-9-



Impairment

The carrying amounts of the Company’s financial assets are reviewed at each reporting date to determine

whether there is any indication of impairment.

As of December 31, 2017, and 2016, the fair values of cash and cash equivalents and sundry receivables

approximates their amortized costs due to their short-term nature.

Impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets

are impaired when there is objective evidence that, as a result of one or more events that occurred after the

initial recognition of the financial assets, the estimated future cash flows of the investments have been

negatively impacted. Evidence of impairment could include: significant financial difficulty of the issuer or

counterparty; or default or delinquency in interest or principal payments; or the likelihood that the borrower

will enter bankruptcy or financial reorganization.

The carrying amount of financial assets is reduced by any impairment loss directly for all financial assets

with the exception of accounts or loans receivable, where the carrying amount is reduced through the use of

an allowance account. When an account or loan receivable is considered uncollectible, it is written off against

the allowance account. Subsequent recoveries of amounts previously written off are credited against the

allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related

objectively to an event occurring after the impairment was recognized, the previously recognized impairment

loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the

impairment is reversed does not exceed what the amortized cost would have been had the impairment not

been recognized.

Financial liabilities

Financial liabilities are classified as ‘other financial liabilities’.

Other Financial Liabilities

Other financial liabilities including borrowings are initially measured at fair value, net of transaction costs.

Other financial liabilities are subsequently measured at amortized cost using the effective interest method,

with interest recognized on an effective yield basis.

The effective interest method is a method of calculating the amortized cost of a financial liability and of

allocating interest costs over the relevant period. The effective interest rate is the rate that exactly discounts

estimated future cash payments through the expected life of the financial liability or to the net carrying

amount on initial recognition.

As of December 31, 2017 and 2016, the fair value of accounts payable and accrued liabilities approximates

their amortized cost due to their short-term nature.

De-recognition of Financial Liabilities

The Company de-recognizes financial liabilities when the obligations are discharged, cancelled or expire.




-10-



Financial Instruments Recorded at Fair Value

Financial instruments recorded at fair value on the statements of financial position are classified using a fair

value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value

hierarchy has the following levels: Level 1 - valuation based on unadjusted quoted prices in active markets

for identical assets or liabilities; Level 2 - valuation techniques based on inputs other than quoted prices

included in Level 1 that are observable for the asset or liability, either directly [i.e. as prices] or indirectly [i.e.

derived from prices]; and Level 3 - valuation techniques using inputs for the asset or liability that are not

based on observable market data [unobservable inputs].

Investments consist of the following at December 31, 2017:

Investments

Cost

$

Level 1

Quoted

Market Price

$

Level 2

Observable

Market Inputs

$

Total

Fair Value

$

Equities 5,381,044 6,537,100 - 6,537,100

Warrants - - 483,625 483,625

Total investments 5,381,400 6,537,100 483,625 7,020,725

Cash and cash equivalents

Cash in the statements of financial position comprise cash at banks and on hand, and short-term deposits with

an original maturity of three months or less, and which are readily convertible into a known amount of cash.

The Company’s cash and cash equivalents are invested with major financial institutions in business accounts

and higher yield investment and savings accounts that are available on demand by the Company.

Provisions

A provision is recognized when the Company has a present legal or constructive obligation as a result of a

past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and the

amount of the obligation can be reliably estimated. If the effect is material, provisions are determined by

discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the

time value of money and, where appropriate, the risks specific to the liability. The Company had no material

provisions at December 31, 2017 or December 31, 2016.

Share-Based Payment Transactions

The fair value of share options granted to employees is recognized as an expense over the vesting period with

a corresponding increase in equity. An individual is classified as an employee when the individual is an

employee for legal or tax purposes (direct employee) or provides services similar to those performed by a

direct employee, including directors of the Company.

The fair value is measured at the grant date and recognized over the period during which the options vest.

The fair value of the options granted is measured using the Black-Scholes option-pricing model, taking into

account the terms and conditions upon which the options were granted. At each financial position reporting

date, the amount recognized as an expense is adjusted to reflect the actual number of share options that are

expected to vest.




-11-


Income Taxes

Income tax on the profit or loss for the years presented comprises current and deferred tax. Income tax is

recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which

case it is recognized in equity.

Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or

substantively enacted at period end, adjusted for amendments to tax payable with regards to previous years.

Deferred tax is provided using the asset and liability method, providing for temporary differences between

the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for

taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax

purposes and the initial recognition of assets or liabilities that affect neither accounting nor taxable profit.

The amount of deferred tax provided is based on the expected manner of realization or settlement of the

carrying amount of assets and liabilities, using tax rates enacted or substantively enacted during the period.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be

available against which the asset can be utilized. To the extent that the Company does not consider it

probable that a future tax asset will be recovered, it provides a valuation allowance against that excess.

Income (Loss) Per Share

The Company presents basic and diluted income (loss) per share data for its common shares outstanding,

calculated by dividing the loss attributable to common shareholders of the Company by the weighted average

number of common shares outstanding during the period. Diluted income (loss) per share is determined by

adjusting the income (loss) attributable to common shareholders and the weighted average number of

common shares outstanding for the effects of all warrants and options outstanding that may add to the total

number of common shares. As at December 31, 2017 and 2016, basic and diluted income (loss) per share

were the same.

Foreign Currencies

The functional currency of the Company, as determined by management, is the Canadian dollar and this is

also the currency in which it presents these financial statements. The Company recognizes transactions in

currencies other than the Canadian dollar (foreign currencies) at the rates of exchange prevailing at the dates

of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and

from the translation of monetary assets and liabilities denominated in foreign currencies at the end of

reporting period exchange rates are recognized in the statements of loss and comprehensive loss. Non-

monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.




-12-


Significant Accounting Judgments and Estimates

The preparation of these financial statements requires management to make certain estimates, judgments and

assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements

and reported amounts of expenses during the reporting period. Actual outcomes could differ from these

estimates. These financial statements include estimates that, by their nature, are uncertain. The impacts of

such estimates are pervasive throughout the financial statements, and may require accounting adjustments

based on future occurrences. Revisions to accounting estimates are recognized in the period in which the

estimate is revised and future periods if the revision affects both current and future periods. These estimates

are based on historical experience, current and future economic conditions and other factors, including

expectations of future events that are believed to be reasonable under the circumstances.

Critical Accounting Estimates

Significant assumptions about the future that management has made that could result in a material adjustment

to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made,

relate to, but are not limited to, the following:

Income Taxes and Recovery of Deferred Tax Assets

The measurement of income taxes payable and deferred tax assets and liabilities requires management to

make judgments in the interpretation and application of the relevant tax laws. The actual amount of income

taxes only becomes final upon filing and acceptance of the tax return by the relevant authorities, which

occurs subsequent to the issuance of the financial statements.

Stock-Based Compensation

Management is required to make certain estimates when determining the fair value of stock options awards,

and the number of awards that are expected to vest. These estimates affect the amount recognized as stock-

based compensation in the statements of income (loss) and comprehensive income (loss) based on estimates

of forfeiture and expected lives of the underlying stock options.

Fair Value of Investment in Securities Not Quoted in an Active Market

Where the fair values of financial assets and financial liabilities recorded on the consolidated statements of

financial position, including equities and warrants, cannot be derived from active markets, they are

determined using a variety of valuation techniques. The inputs to these models are derived from observable

market data where possible, but where observable market data are not available, management’s judgment is

required to establish fair values.




-13-


Future Accounting Changes

The following standards have not yet been adopted and are being evaluated to determine their impact on the

Company's financial statements.

(i) IFRS 9 – Financial Instruments (“IFRS 9”) was issued by the IASB in October 2010 and in its final

form in June 2015 and will replace IAS 39 - Financial Instruments: Recognition and Measurement

(“IAS 39”). IFRS 9 uses a single approach to determine whether a financial asset is measured at

amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based

on how an entity manages its financial instruments in the context of its business model and the

contractual cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for

classification and measurement of financial liabilities were carried forward unchanged to IFRS 9.

The new standard also requires a single impairment method to be used, replacing the multiple

impairment methods in IAS 39. IFRS 9 will be effective as at January 1, 2018. The Company intends

to adopt the standard when it becomes effective. The Company has completed its assessment and

there will be no significant impact on the financial statements.

(ii) In January 2016, the IASB issued IFRS 16, Leases (IFRS 16). IFRS 16 is effective for periods

beginning on or after January 1, 2019, with early adoption permitted. IFRS 16 eliminates the current

dual model for lessees, which distinguishes between on-balance sheet finance leases and off-balance

sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to

current finance lease accounting. The extent of the impact of adoption of IFRS 16 has not yet been

determined.

3. CAPITAL MANAGEMENT

The Company manages its capital with the following objectives:

to ensure sufficient financial flexibility to achieve the ongoing business objectives including funding of future growth opportunities, and pursuit of accretive acquisitions; and

to maximize shareholder return through enhancing the share value.

The Company monitors its capital structure and makes adjustments according to market conditions in an

effort to meet its objectives given the current outlook of the business and industry in general. The Company

may manage its capital structure by issuing new shares, repurchasing outstanding shares, adjusting capital

spending, or disposing of assets. The capital structure is reviewed by management and the Board of Directors

on an ongoing basis.

The Company considers its capital to be equity, comprising share capital, equity settled share-based payments

reserve, and deficit, which at December 31, 2017 totaled $7,688,923 (December 31, 2016 - $6,575,031). The

Company manages capital through its financial and operational forecasting processes. The Company reviews

its working capital and forecasts its future cash flows based on operating expenditures, and other investing

and financing activities. Information is provided to the Board of Directors of the Company. The Company’s

capital management objectives, policies and processes have remained unchanged during the year ended

December 31, 2017. The Company is not subject to any capital requirements or restrictions.




-14-

4. FINANCIAL RISK FACTORS

Financial Risk

The Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk, market risk (including interest rate and foreign exchange rate).

Risk management is carried out by the Company's management team with guidance from the Audit Committee under policies approved by the Board of Directors. The Board of Directors also provides regular guidance for overall risk management.

Credit Risk

Credit risk is the risk of loss associated with a counterparty’s inability to fulfil its payment obligations. The

Company's credit risk is primarily attributable to cash and cash equivalents and its loan receivable. The

Company has no significant concentration of credit risk arising from operations. Cash and cash equivalents

consist of cash at banks and on hand, short-term deposits with an original maturity of three months or less.

The cash on hand and short-term deposits have been invested and held with reputable financial institutions,

from which management believes the risk of loss to be remote. As at December 31, 2017, the Company held

$79,280 (2016 - $5,923,565) in short-term deposits.

Liquidity Risk

Liquidity risk refers to the risk that the Company will not be able to meet its financial obligations as they

become due, or can only do so at excessive cost. The Company's liquidity and operating results may be

adversely affected if the Company's access to the capital market is hindered, whether as a result of a

downturn in stock market conditions generally or as a result of conditions specific to the Company. As at

December 31, 2017, the Company had a cash balance and cash equivalents of $772,290 (December 31, 2016

- $6,353,915) to settle current liabilities of $111,510 (December 31, 2016 - $102,070). The Company

regularly evaluates its cash position to ensure preservation and security of capital as well as maintenance of

liquidity.




-15-

4. FINANCIAL RISK FACTORS (Continued)

Financial Risk (Continued)

Most of the Company's financial liabilities have contractual maturities of less than 30 days and are subject to normal trade terms.

Market Risk

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity and equity prices.

(i) Interest Rate Risk

The Company has cash balances, a loan receivable and no interest-bearing debt. The loan receivable bears interest at a fixed rate (Note 6). The Company regularly monitors its cash management policy.

(ii) Foreign Exchange Risk

The Company's functional currency is the Canadian dollar and it transacts major purchases in Canadian dollars. Management believes the foreign exchange risk derived from currency conversions is minimal, and therefore does not hedge its foreign exchange risk.

Sensitivity Analysis

Based on management's knowledge and experience of the financial markets, the Company believes the

following movements are reasonably possible over a twelve month period:

(i) Cash and cash equivalents are subject to floating interest rates. Sensitivity to a plus or minus one

percentage point change in interest rates would not have a material impact on the reported net

income for the year ended December 31, 2017.

(ii) The Company is exposed to foreign currency risk on fluctuations of financial instruments related to

cash and cash equivalents denominated in US dollar. A plus or minus 5% change in foreign

exchange rates applied to the financial instruments held at the end of the reporting period would

affect net loss by approximately $3,773 (December 31, 2016 - $4,021).




-16-

5. INVESTMENTS

Shares

#

Amount

Invested

$

Market Value

December 31,

2017

$

Unrealized

Gain/(Loss)

year ended

December 31,

2017

$

Iron Bridge Resources Inc. 1,876,500 1,527,120 1,351,080 (176,040)

Aguia Resources Limited

Common shares 2,814,843 1,348,242 985,195 (363,047)

Warrants 1,250,000 - - -

AnalytixInsight Inc.

Common shares 2,272,500 485,614 1,249,875 764,261

Warrants 1,250,000 - 250,000 250,000

kneat.com, inc. 1,000,000 600,000 850,000 250,000

eXeBlock Technology Corporation

Common shares (a) 925,000 155,750 869,500 713,750

Warrants 262,500 - 233,625 233,625

Pivot Technology Solutions 190,500 496,717 419,100 (77,617)

Westdome Gold Mines 125,000 254,777 263,750 8,973

DHX Media 90,000 372,824 408,600 35,776

Other public companies 365,715 140,000 140,000 -

5,381,044 7,020,725 1,639,681

(a) Certain shares in eXeBlock Technology Corporation are subject a statutory four-month hold period and

voluntary pooling. The hold period on 400,000 shares expired on February 5, 2018. These shares are also

subject to a voluntary pooling agreement, under which, 25% were eligible for release on listing on November

8, 2017 and an additional 25% will be released every three months thereafter being February 8, 2018, May 8,

2018 and August 8, 2018.

6. LOAN RECEIVABLE

On November 20, 2013, the Company announced it had entered into an agreement to loan (the “Loan”) $1.5

million to 2390110 Ontario Inc. (the “Borrower”), an arm’s length entity incorporated to acquire a property

located at 321 University Avenue, Belleville, Ontario (the “Property”). The Borrower raised additional funds

to complete the purchase of the Property.

The Loan and a finance fee (the “Finance Fee”) of $180,000, payable to the Company by the Borrower, bore

interest at a rate of 2% monthly, commencing on March 31, 2014.

The Loan was secured by a mortgage on the Property, a general security granted from the Borrower in favour

of the Company and a guarantee and pledge of securities by the principal of the Borrower in favour of the

Company, all of which ranked pari passu with another lender of the Borrower.




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6. LOAN RECEIVABLE (continued)

On February 10, 2015, the Company received repayment of $1.715 million in settlement of this loan. In

addition to interest payments of $135,057 received during the term of the Loan, the Company received a

financing fee of $180,000 and a promissory note (“the Note”) for $238,262, representing the net interest

balance as at February 10, 2015. The Note, bearing interest at 12% per annum, matured on December 31,

2015. As at December 31, 2017, the Note remained outstanding and continues to accrue interest. For the

year ended December 31, 2017, interest income of $17,543 (December 31, 2016 - $28,670) was recognized

on the statements of income (loss) and comprehensive income (loss) in respect to the Note. The Company

did not record any interest in 2017 and recorded a write-down of the note receivable in the fourth quarter.

7. ARRANGEMENT WITH ONEUP SPORTS

On July 27, 2015 and amended October 19, 2015, the Company signed a definitive arrangement agreement

("Arrangement Agreement") with 2315257 Ontario Inc. (OneUp Sports Canada), a corporation existing under

the laws of Ontario, which is the holding company for its operating subsidiary OneUp Games, LLC

(collectively, "OneUp Sports"). The arms-length Arrangement Agreement outlined the terms and conditions

of the business combination pursuant to which OneUp Sports would complete a reverse take-over of Torrent

(the "Transaction").

On December 23, 2015, the Company filed a lawsuit in the Ontario Superior Court of Justice against OneUp

Sports alleging that it was in breach of the terms of the Arrangement Agreement between Torrent and OneUp

Sports. Torrent was, among other things, seeking specific performance under the Arrangement Agreement.

On March 29, 2016, the Company and OneUp Sports settled the litigation pertaining to the terms of a

settlement arrangement (the “Settlement Agreement”). Under the terms of the Settlement Agreement, OneUp

Sports Canada will pay and issue to Torrent consideration consisting of:

1. Cash in the amount of CDN $570,000 (received CDN $320,000 in 2016), to be paid in two tranches

over a period not to exceed eighteen months as OneUp Canada closes current and future offerings of

equity and/or debt securities;

2. 1,562,500 class A common shares of OneUp Canada (received in April 2016); and

3. 800,000 warrants exercisable for a period of two years into class A common shares of OneUp Canada,

at an exercise price of USD $0.25 per share (received in April 2016).

After a thorough review of OneUp Sports and in light of numerous legal actions against it, the Company

determined the presence of various impairment indicators related to its investment in OneUp Sports and the

outstanding settlement amount receivable. While the Company continues to have the rights associated with

its outstanding amount receivable and investments in common shares and warrants, there is considerable

uncertainty associated with the collection of the receivable and realization of the investments. As a result,

effective December 31, 2016, the Company recorded an impairment charge equal to $757,305 representing

the outstanding amount receivable of $250,000 and the value of its investment in 1,562,500 common shares

and 800,000 warrants of OneUp Sports. This resulted in an overall net gain of $320,000 based on the

settlement cash received in mid-2016.




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8. SHARE CAPITAL

(a) AUTHORIZED

Unlimited number of common shares

(b) ISSUED

Number of

Shares

Outstanding

$

Balance – December 31, 2017 and 2016 23,648,333 8,119,404

On February 1, 2017, the Company completed a one-for-three share consolidation. All references to the

number of common shares have been adjusted retrospectively to reflect the Company’s one-for-three share

consolidation for all periods disclosed in these financial statements.

(c) ESCROWED

As a result of the Company’s change of business, 4,189,204 common shares held by the directors were

subject to a Tier 1 Value Escrow Agreement. There was an initial release of 963,583 (23%) of the escrowed

securities on February 2, 2017 and the remaining shares will be released at a rate of 1,075,207 (25.7%) every

six months thereafter. As at December 31, 2017, 2,150,418 shares continue to be escrowed.

9. STOCK OPTIONS AND RESTRICTED SHARE UNITS

The Company has a stock option plan (the "Plan") for directors, officers, employees and consultants. The

Company also has a restricted share unit plan, under which the Company can issue up to 800,000 shares. The

restricted share plan together with the option plan shall not exceed 10% of the issued and outstanding

common shares of the Company. The options can have up to a ten-year life and the vesting period is set by

the Board. Options are granted at a price no lower than the market price of the common shares. The

performance criteria and performance period of the restricted shares units are determined by the Board of

Directors.

On June 15, 2017, the Company granted 675,000 stock options to directors, officers, employees and

consultants. The options are exercisable at a price of $0.30 per share and expire on June 15, 2022. The

options will vest at a rate of 50% of the total on each of the six and twelve month anniversaries of the grant

date.

The estimated fair value of options recognized has been estimated at the grant date using the Black-Scholes

option pricing model. Option pricing models require the input of highly subjective assumptions, including

the expected volatility. Changes in the assumptions can materially affect the fair value estimate and,

therefore, the existing models do not necessarily provide a reliable estimate of the fair value of the

Company’s stock options. The assumptions used in the pricing model for the options issued during the year

ended December 31, 2017 were as follows:

Risk free interest rate

1%

Expected volatility 100%

Expected dividend yield -

Expected life 5 years

Weighted average fair value per option $0.223




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9. STOCK OPTIONS AND RESTRICTED SHARE UNITS (Continued)

Based on the Black-Scholes option pricing model and the assumptions outlined above, the estimated fair

value of the granted options is $150,452. This amount is amortized over the vesting period and $119,109 has

been expensed during the year ended December 31, 2017.

As at December 31, 2017, 904,166 stock options were fully vested and exercisable. The following table

reflects the stock options for the year ended December 31, 2017:

Number of

Stock Options

Outstanding

Weighted

Average

Exercise Price

$

Balance - December 31, 2016 and 2015 616,666 0.32

Options granted 675,000 0.30

Options expired (50,000) 0.48

Balance – December 31, 2017 1,241,666 0.30

The following table reflects the stock options outstanding as at December 31, 2017:

Expiry Date

Exercise

Price

$

Weighted

Average Life

Remaining

Options

Outstanding

Black-Scholes

Value

$

May 24, 2018 0.30 0.4 years 433,333 71,500

November 21, 2019 0.30 1.9 years 133,333 33,720

June 15, 2022 0.30 4.5 years 675,000 150,452

0.30 2.8 years 1,241,666

10. RELATED PARTY TRANSACTIONS AND BALANCES

Remuneration of Directors and key management personnel of the Company was as follows:

2017 2016

$ $

Director remuneration 63,205 53,500

Management service fees and rent (notes i and ii) 48,070 33,981

CFO remuneration – R. Randall 49,988 31,800

Chief Investment Officer – S. Gardner 160,000 - Professional fees to a director - 70,000

CEO and CFO remuneration (note i) - 25,900

321,263 215,181




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10. RELATED PARTY TRANSACTIONS AND BALANCES (continued)

i) During the year ended December 31, 2017, the Company incurred management services fees of $22,800

(year ended December 31, 2016 - $8,250), rent of $12,420 (year ended December 31, 2016 - $5,175)

and other fees of $12,850 (year ended December 31, 2016 - $nil) with Numus Financial Inc., a company

owned by two directors.

ii) During the year ended December 31, 2016, the Company expensed $46,456 to Marrelli Support

Services Inc. (“Marrelli Support”) and DSA Corporate Services Inc. (the “DSA”), together known as the

“Marrelli Group” for:

(a) Robert D.B. Suttie, Vice President of Marrelli Support, to act as Chief Financial Officer

(until August 2016) and interim Chief Executive Officer (until May 2016) of the Company;

(b) Bookkeeping and office support services; and

(c) Regulatory filing services.

The Marrelli Group and Numus Financial were also reimbursed for out of pocket expenses.

In June 2017, the Company issued 625,000 stock options to directors and officers. The estimated fair value

of these stock options was $139,307, of which stock-based compensation of $110,285 has been recognized in

the year ended December 31, 2017.

As of December 31, 2017, related parties were owed $72,562 (December 31, 2016 - $18,928). These amounts

are included in accounts payable and accrued liabilities.

The above noted transactions are in the normal course of business, as agreed to by the parties and approved

by the Board of Directors in strict adherence to conflict of interest laws and regulations.




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11. INCOME TAXES

The reconciliation of the combined Canadian federal and provincial statutory income tax rate of 26.5% (2016 – 26.5%) to the effective tax rate is as follows:

December 31,

2017

$

December 31,

2016

$

Income (loss) before recovery of income taxes 994,783 (6,266)

Expected income tax (recovery) expense 308,380 (1,660) Permanent difference regarding accounting gain on investments (254,160) 5,140 Tax rate changes and other adjustments (94,240) (23,330) Capital loss on settlement of debt 36,930 - Stock based compensation and other undeductible items 37,870 - Change in tax benefits not recognized (34,780) 19,850

Income tax (recovery) expense - -

Deferred Tax

The following table summarizes the components of deferred tax:

December 31,

2017

$

December 31,

2016

$

Deferred Tax Asset Capital losses carried forward 175,520 - Deferred Tax Liability Unrealized gains on investments (175,520) -

Net deferred tax - -

Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same

taxation authority and the Company has the right and intent to offset.




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11. INCOME TAXES (continued)

Unrecognized Deferred Tax Assets

Deferred taxes are provided as a result of temporary differences that arise due to the differences between the

income tax values and the carrying amount of assets and liabilities. Deferred tax assets have not been

recognized with respect to the following deductible temporary differences:

Deferred Income Tax Assets December 31,

2017

$

December 31, 2016

$

Exploration and evaluation assets 322,420 398,050

Intangible asset 244,440 262,830

Marketable securities - 507,310

Non-capital losses carried forward 772,410 384,060 Net capital losses carried forward 561,310 1,455,420

The Canadian non-capital loss carry forwards expire from 2035 to 2037. The net capital loss carry forwards

may be carried forward indefinitely, but can only be used to reduce capital gains. The remaining deductible

temporary differences may be carried forward indefinitely. Deferred tax assets have not been recognized in

respect of these items because it is not probable that future taxable profit will be available against which the

Company can utilize the benefits therefrom.

torrent capital ltd. (formerly metallum resources inc.) … · (233,477) (326,266) adjustments for:...

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